Safety and Soundness

We want to make clear that Alerus Financial, N.A. is in strong financial condition. However, the safety of your account is not tied to Alerus’ financial viability. We are required to hold client assets as either a trustee or custodian and must keep these assets segregated from the general assets of the bank and holding company.

Alerus Financial's investment philosophy and process has not changed and it is important for you to know why. Over the short run, the market can shift its attention and tend to favor one investment management style or asset class over another. However, these shifts can only be seen in retrospect. Attempting to correctly predict and time style shifts is virtually impossible. Many investment managers have tried, failed miserably and gone out of business as a result due to disastrous performance. Maintaining a proven, consistent style has proved to be the most successful approach to investment management over the long run. Alerus Financial has maintained its philosophy and investment process for several decades. back to top

Federally regulated banks are required to employ underwriting practices to avoid losses and to promote safe and sound operations. And when they do not operate appropriately, their regulators, who visit them annually, will take exception to such practices and require corrective action.

That depends on the bank's charter. There are four federal regulators–the Federal Reserve Board, the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation. The FDIC also insures deposits in its member banks up to $100,000 for regular accounts and up to $250,000 for retirement accounts. That insurance applies to accounts in FDIC member banks that are commercial banks, thrifts, and savings banks.

The problem is that words matter. And when one word is used to mean several different things, it inevitably creates confusion. For example, we know what a bank is. But sometimes a business that wants to add status to its name will call itself a "bank" even though it is not an insured depository institution—such as a commercial bank, thrift, or savings bank.

Bear Stearns, the investment house headquartered in New York City, was not a commercial bank. It was an investment "bank."

The word "bank" is also applied to mortgage firms. Their function, their purpose, and their regulation differ from federally insured depository institutions. And in this time of market turmoil, it is worthwhile remembering that only commercial banks, thrifts, and savings banks carry FDIC insurance.

They are providing stability. Having a safe and sound banking system to rely on shows the importance of the role banks play in our local communities and in our nation's economy. They are the source of stability and of growth. That is true regardless of their asset size, their charter, or their business plan. And the vast majority of federally regulated, federally insured banks today hold more capital than the law requires.

Today's crisis underscores the fact that there are two ways financial institutions can fail. They can fail due to capital insolvency, or because they are liquidity insolvent. What many of those institutions are experiencing now is a lack of liquidity, not a lack of capital. Capital remains strong—strong for investment banks as well as for commercial banks and thrifts.

The liquidity crisis that we have seen on Wall Street comes from a crisis of confidence. In the 1930s, before deposit insurance, banks failed because of a crisis of confidence that led to liquidity insolvency. That can also happen to an investment "bank" such as Bear Stearns. There is a crisis of confidence, lending lines are pulled, liquidity evaporates, and insolvency is inevitable.

We all know that our financial system is being tested. But let us also remember that the system is showing its resiliency. Let me give you some examples:

The Federal Reserve Board has acted to help restore liquidity by assuring everyone that they are responding to the problems in a measured way. The Fed's action in regard to Bear Stearns is one example. In addition, the Fed opened up its lending facility known as the discount window to Wall Street firms, and is taking steps to restore liquidity to the markets.

In addition, the Office of Federal Housing Enterprise Oversight has reduced the capital surcharge imposed on Fannie Mae and Freddie Mac so they can buy an additional home mortgages.

And the Federal Housing Finance Board will allow the nation's 12 Federal Home Loan Banks to provide greater liquidity in the mortgage markets.

Keep in mind that those reports overlook the fact that the subprime lending crisis was caused by unregulated brokers and Wall Street institutions themselves, sometimes using the title "bank," and not by regulated, insured banks.

Our banking system is strong. This crisis will pass, as have all the others, and the result will be a stronger financial system with fewer unregulated players and a reminder that liquidity and capital are both important to solvency.

Probably, but you should temper your expectations. While it can be argued that it is a good time to buy while market prices are so low, the potential still exists for further losses before the market turns higher. back to top

The investment portfolios managed by Alerus Financial are well diversified across many areas of the market. It is safe to say that when the market recovers, your portfolio will recover as well.back to top

Your investment allocation, strategy, and plan are unique to your personal financial situation. With a thorough understanding of your financial situation, lifestyle, and goals, your Alerus professional can advise you to create or review your customized strategy specifically to meet you and your families needs.back to top